Foreign Aid and Urbanization in Developing Countries

Abstract

This paper examines whether developing countries receiving more foreign aid also have higher rates of urbanization. After presenting a simple theoretical model, empiricalwork is conducted on a cross-section of countries during the 1990s. The paper finds that foreign aid is positively associated with subsequent urbanization even after controlling for income levels, population, and regional characteristics. If this association is given a causal interpretation, the results indicate that foreign aid enlarges urban areas.